The dollar climbed to a five-year high, U.S. stocks rose to records and Treasuries fell as signs of a strengthening economy bolstered the case for higher interest rates. European equities rallied on German factory data amid speculation for more stimulus.

Employers in the U.S. added 321,000 jobs in November, driving wage gains and highlighting increased corporate confidence the economy will endure a global slowdown. The Federal Reserveis weighing jobs growth as it decides when the economy is strong enough to withstand higher rates. European equities rebounded from the biggest drop in seven weeks after two officials familiar with deliberations said the central bank will consider a proposal for broad-based asset purchases at the next monetary-policy meeting on Jan. 22.

“It was an amazing jobs report, with gains across every sector,” Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding Corp., said in a phone interview. The firm manages about $653 billion in client assets. “It really was a number that Wall Street wasn’t prepared for. The market doesn’t like surprises so there was selling pressure but the number is too good to sell on based off of that.”

The advance in payrolls exceeded the most optimistic projection in a Bloomberg survey of economists. The jobless rate held at a six-year low of 5.8 percent. Average hourly earnings rose 0.4 percent, the biggest gain since June of last year.

Fed policy makers said they plan to raise interest rates in 2015, even as the outlook for global inflation remains low with the price of crude oil down more than 35 percent this year. They meet Dec. 16-17.

David Fuller's view

Unquestionably, this was unexpectedly good economic news.  However, the stock market’s response was muted for two reasons:

1) Many US stock market indices, including the Nasdaq 100 and S&P 500 are somewhat overextended in the short term, following very strong and persistent rallies since the mid-October reaction lows. 

2) Some commentators are calling for the Fed to start raising short-term interest rates, in anticipation of future inflation pressures. 

Experienced investors know that persistent good news takes one out of the ‘sweet spot’, where neither inflation nor overheating is a problem and monetary policy can remain an effective tailwind, as we have long seen.

I doubt that Janet Yellen will rush to lift rates, and not just because of an obsession with the premature tightening in 1937.  She will want to see further evidence of a sustainable US economic recovery, not least against a background of deflationary pressures and generally slow global GDP growth. 

Also, she will be aware that the US Dollar’s rally, while welcome as it follows a secular downtrend, has many of the reining in characteristics of rate hikes.  She also knows that higher rates would give speculators another excuse to buy the greenback. 

Additionally, low oil prices, if maintained, have postponed the inflation risk for at least a decade.  Weak oil will also lead to a shakeout in the previously booming US oil fracking sector.

Equity investors remain in both a monetary and American election cycle ‘sweet spot’, which extends well beyond the USA’s shoreline.  Nevertheless, keep an eye on Russia and other trouble spots.